Stock investment is gaining popularity in India. With the liberalisation of the
Indian economy, the retail investors are now attracted to invest in stock market
alongside institutional and foreign investors. Also, the major stock markets in
India have switched to an online trading system which allows investors to invest
in stock market while staying at home.
There are two ways by which one can start investing in stock market. One, through
daily trading, and the other by making long term stock investment.
Retail investors who want to invest in stock need to understand how the stock market
works, while a majority of them place their bets on the stock market without understanding
the way it functions. For some, this may be equivalent to gambling in the stock
market while many of them call this stock market investing.
The speculative nature of such market players may be akin to gambling. These speculators
usually pick up stocks of a particular company based on the price movements and
tips given to them by their friends and family.
Successful investors do not speculate when they make stock investment. They do their
research and invest in stock of fundamentally strong companies. They invest in companies
which have a good management, sound business model and products that people need
and want. They prefer investing in stock market in stocks of companies which, over
a period of time, maintain consistent growth and profits. They refer the order book,
financial statements and balance sheets of the company before deciding to invest
in stock of these companies. They don’t track the price of their shares at short
intervals, but patiently wait for the asset to perform in the long run.
World renowned investment guru Warren Buffet once said “If you're an investor, you're
looking on what the asset is going to do, if you're a speculator, you're commonly
focusing on what the price of the object is going to do, and that's not our game.”
One must also realise that stock market investing is not a difficult task to understand.
Many would rather stay out of the stock investment and keep their money in a bank
account. But the best way of understanding the share market, is by entering it and
becoming a market player.
To invest in stock, one could start by
opening a demat account with a broker.
While investing in stock market, one should make a detailed analysis of one’s risk
appetite. The investor must understand how much he must invest, when must he invest
and for how long he must stay invested. One must diversify his portfolio in such
a way that the risks arising due to the volatility in the market is spread over
a variety of stock investment avenues.
If he is not willing to take any risk in the short term, he can be called a Cautious
stock market Investor. He may wish to invest in cash or near-cash assets. He may
also think to invest in stock through Mutual Funds. But the potential for growth
in such assets is not all that high. Also inflation can reduce the returns that
some of these assets generate.
If the investor decides to have a balance of risk and reward while investing in
stock market, he can be called an investor with a balanced Portfolio. He may choose
to diversify his risks over a plethora of stock investment options.
An investor who chooses to have high risk levels in his portfolio can be called
an Adventurous stock market investor. He is ready to forgo the short term losses
caused by the fluctuations in the market and focus on the larger gains that await
him in the long term. Such investors typically prefer investing in stock market
in a narrow range of securities, primarily equity.